Source: Indian Express

Introduction

The Bombay High Court's judgment in Viraj Chetan Shah v. Union of India and Ors. (2024) addressed the constitutional validity of amendments allowing public sector bank heads to request Look Out Circulars (LOC) against defaulting borrowers, restricting their freedom to travel abroad. The petitioner challenged these amendments as violating fundamental rights under Articles 14 and 21 by curtailing liberty through executive action without statutory backing or prescribed procedure.

What is the Background of Viraj Chetan Shah v. Union of India and Ors. (2024)?

• This is a group of cases challenging the constitutional validity of certain amendments to the Office Memoranda (OMs) issued by the Ministry of Home Affairs (MHA) that allowed the heads of public sector banks (PSBs) to request the issuance of Look Out Circulars (LOCs) against defaulting borrowers.
• The petitioner in the lead case, Viraj Chetan Shah, was a director and personal guarantor for loans taken by a company called P&S Jewellery Ltd from a consortium of banks, including Union Bank of India (UBI).
• After the company defaulted on the loans, UBI initiated proceedings under SARFAESI Act and declared Viraj Chetan Shah a willful defaulter. At the request of another PSB, State Bank of India, UBI issued a LOC against Shah to prevent him from leaving India.
• Viraj Chetan Shah challenged the constitutional validity of the amendments to the OMs that allowed PSB heads to request LOCs, arguing it violated his fundamental rights under Articles 14 and 21 of the Constitution. He also mentioned OM is against the right to travel abroad.
• The key OMs and amendments challenged were:
  • 2018 amendments empowering PSB heads to request LOCs
  • 2019 OM equating the financial interests of PSBs with economic interests of India for issuing LOCs
  • 2021 OM allowing automatic renewal of LOCs until cancelled
  • Similar challenges were raised in other connected petitions by individuals against whom LOCs were issued at the request of various PSBs for being defaulters.

What were Centre's Submission?

• The government argued that these measures were necessary to tackle the surge in wilful defaulters and economic offenders.
• The government contended that the circulars contained checks and balances to prevent arbitrary deprivation of life or personal liberty.
• However, the court found these arguments insufficient to justify the curtailment of fundamental rights.

What were the Observations of Court?

• Rights Cannot Be Curtailed by Executive Action Without Law:
  • The court observed that the right to travel abroad, being part of the fundamental right to life under Article 21 of the Constitution, cannot be curtailed by an executive action in the absence of a governing statute or controlling statutory provision.
• Passports Act Does Not Fully Occupy the Field:
  • While the entire field of controlling entry and exit from India's borders is not fully occupied by the Passports Act 1967, the Office Memoranda (OMs) may validly authorize the issuance of LOCs in cases other than the ones under consideration in these cases (for instance, at the request of another agency or following a court order).
• OMs Not Per Se Arbitrary or Unconstitutional:
  • The OMs themselves were not found to be per se arbitrary and unconstitutional as ultra vires Articles 14 and 21 of the Constitution.
• Inclusion of PSB Heads Held Bad:
  • However, the inclusion of Chairmen/Managing Directors/CEOs of all public sector banks in Clause 6(B)(xv) of the 22nd February 2021 OM, effected by the previous amendment, was held to be bad in law and liable to be struck down on the grounds of arbitrariness, unreasonableness, improper and invalid classification, and conferment/delegation of uncanalised and excessive power.
• Automatic Renewal of LOCs Upheld:
  • The court did not find Clause 6(J) of the 22^nd February 2021 OM, which allowed LOCs to continue until cancelled instead of providing a fixed term, to be ultra vires Articles 14 and 21 or manifestly arbitrary, unreasonable and disproportionate.
• LOCs by PSBs Quashed for Lack of Procedure:
  • The impugned LOCs issued by PSBs were quashed and set aside for being ultra vires Articles 14 and 21, including for infringing a fundamental right except according to a procedure established by law and failure to abide by mandated minimum procedural norms, as well as for being unreasonable and arbitrary.

What are the Implications and Future Course of Action?

• The court's ruling does not affect existing restraint orders issued by competent authorities but provides clarity on the limits of executive power.
• It emphasizes the importance of due process and legal scrutiny in matters affecting individual rights.
• Moving forward, banks have avenues to seek remedies through courts or invoke relevant laws like the Fugitive Economic Offenders Act, 2018.

Conclusion

The Bombay High Court's judgment upheld the sanctity of fundamental rights against arbitrary state action. While acknowledging banks' interests in recovering dues, it ruled that curtailing personal liberty requires an underlying statute and fair procedure. Economic priorities cannot trample constitutional rights. By striking down the lack of safeguards, the court ensured due process reigns supreme over unilateral executive diktats, preserving the rule of law and constitutional supremacy.